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Kenya: Taxpayers’ Loss – Sh1 Billion Claims Balloon to Sh34 Billion

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4 years ago

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MPs have alleged collusion to fleece taxpayers after it emerged government officials avoided paying three firms Sh1.4 billion and the claims have now ballooned to Sh34 billion.

Lawmakers protested a scheme by state officials to present weak defences in civil suits filed by contractors in order to facilitate bigger payouts as they scrutinised claims against the Ministry of Health.

The pending bills that have variedly accrued since 1992 when the services from three contractors are said to have been supplied, although it remains to be proven whether indeed, they were supplied, puts the Ministry of Health on the spot.

Yesterday, the Public Accounts Committee (PAC) of the National Assembly was taken aback by the huge decretal amounts by the courts, saying it was an added burden to overtaxed Kenyans.

What confounded members of the committee chaired by Ugunja MP Opiyo Wandayi is the fact that in some instances, the ministry did not appeal the court awards, after being advised by the office of the Attorney General.

Documents submitted to the committee show that the AG’s office advised the ministry not to appeal, and instead proceed to pay the decretal amount.

In what may appear as a collusion of some sort involving ministry employees, office of the Attorney-General and the contractors to plunder public resources, contractual agreements were deliberately negated through delayed payments or cancellation, exposing the government to suits.

Weak evidence

To make matters worse, weak evidence is presented in court on the cases against the government leaving nothing but for the courts to rule in favour of the contractors.

Courts make judgments on the basis of the evidence adduced before them.

Health Principal Secretary Susan Mochache, who yesterday appeared before the PAC, which is examining the report of Auditor-General Nancy Gathungu on the accounts of the ministry for the financial year 2019/20, had a hard time explaining why the pending bills have ballooned “beyond the reach of the taxpayer”.

Ms Mochache also remained tightlipped as to why the historical pending bills were not dealt with by the Pending Bills Committee established in 2004 by the Narc regime.

The mandate of the committee was to separate genuine contractors from cowboy contractors that had become the bane of the previous administration, fleecing the taxpayer through fictitious claims for supplies not made.

For instance, the committee heard that a Sh1.2 billion claim Equip Agencies Ltd had ballooned to more than Sh80 billion before it was scaled down to Sh15.2 billion through the court. Vulkan Ltd’s Sh57 million claim went up to Sh3.1 billion and United Medical Suppliers’ went from Sh196.89 million to Sh17.8 billion.

As the ministry haggles over the exchequer issues, the interests in these decreed amounts continue to grow exponentially.

“These figures are mind boggling. How was this possible? This is a very disturbing scenario. How the government goes about collecting taxes to pay court awards that don’t contribute to the GDP is a sad reality,” said Mr Wandayi.

The audit report shows that in July 2000, Vulcan sued the ministry for failure to pay for goods supplied in 1996 and for the loss of profit on cancellation of the contract.

Sh57.36 million

The goods supplied amounted to Sh57.36 million, while the claim for the loss was Sh20.41 million, totaling to Sh77.77 million. On October 9, 2015, the court awarded the supplier Sh1.86 billion.

This included the principal amount of Sh77.77 million, legal fees of Sh26.6 million and compounded interest of 2 percent per month from May 2000 running to the date of judgment.

Interestingly, the ministry did not appeal against the decretal award, meaning that it was in agreement with the court verdict.

The amount had, however, accumulated to Sh3.14 billion by 2017.

“The ministry entered into negotiations with the supplier and the amount was revised downwards to Sh1.75 billion, but continued to attract compounded interest at the rate of 2 percent per month,” the audit report says.

On June 30, 2020, the ministry paid the supplier Sh751.42 million through the Attorney General, leaving a balance of Sh1 billion, which continued to attract compound interest.

Yesterday, Ms Mochache told the committee that the office of the Attorney-General advised against appealing the ruling.

“The Attorney-General advised that there are limited judicial options for the resolution of the matter and further delay in settling the matter would result in interest accrual and expose the government to greater loss of public funds,” said Ms Mochache.

Court award

Although the Ministry had agreed to settle the decretal amount, the PS told the committee that budgetary constraints had delayed the settlement of the court award.

Ms Mochache’s attempts to take credit for having had the amount scaled down from Sh3.1 billion to Sh1.75 billion were dismissed by MPs Wandayi, Aden Duale (Garissa Township) and Joseph Ngugi (Gatanga).

“Your assertion that the contractor agreed to cede the interest and penalties, but accept the Sh1.75 billion when the initial amount was Sh57 million is not good economics. The owners of those companies must come here. That you paid Vulcan without appealing raises questions,” said Mr Duale.

Interestingly, the contract was not given to the auditors at the time of the audit, and has not been given to date.

“What is coming up is that the contract was not availed (sic) to the auditors. You awarded it and cancelled it. So what were you paying for?” asked Mr Ngugi.

The audit report further shows that Equip Agencies Ltd was contracted by the ministry in 1995 for a contract period expiring in 1997.

The company was required to supply antimalarial drugs and equipment to the government on an “as and when required” basis.